A high dividend yield can sometimes indicate that the payout is at high risk of being reduced. However, that's not the case with the 7.5%-yielding distribution offered by MPLX (MPLX 0.41%). The master limited partnership (MLP) supports its high-yielding payout with very stable cash flow. It also has a rock-solid financial profile.
The midstream company's strong financial position enables it to invest heavily in expanding its operations. This gives it the fuel to increase its high-yielding payout. That growing income stream makes the MLP attractive to those seeking a safe and secure passive income stream as long as they're comfortable receiving a Schedule K-1 federal tax form each year.
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The steady growth continues
MPLX generated nearly $1.7 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter. That was up 2% compared to the same period of last year. It brought the MLP's year-to-date total to more than $3.4 billion, up 5% from last year's first half, driven by higher rates on long-term, fee-based contracts and service agreements.
The midstream company generated $1.4 billion of distributable cash flow during the period. This was enough to cover its quarterly distribution to investors by a comfy 1.5 times. MPLX returned an additional $100 million in cash to investors by repurchasing some of its units in the quarter. It retained the rest to invest in expanding its operations and to maintain its strong balance sheet. The company ended the quarter with a 3.1 times leverage ratio. That's an improvement from 3.4 times in the year-ago period. It is also well below the 4.0 times range its stable cash flows can support.
NYSE: MPLX
Key Data Points
MPLX spent over $600 million on expansion initiatives in Q2. This included organic growth projects and $151 million in acquisitions. That brought its year-to-date total to over $1.2 billion, including a $388 million acquisition in Q1. These growth investments support the company's plans to deliver mid-single-digit annual adjusted EBITDA growth. MPLX also continues to return cash to investors through a growing distribution. The company has raised its payment every year since its formation in 2012. It has grown the distribution at a compound annual rate of more than 10% since 2021.
Lots of growth ahead
MPLX recently added a lot more fuel to its growth engine by agreeing to acquire Northwind Midstream in a nearly $2.4 billion deal. The company expects to close the purchase in Q3. The transaction would provide an immediate boost to its cash flow this year. That cash flow should increase in 2026 as the company completes in-process expansion projects. Northwind should supply the company with stable and growing cash flow in the future, backed by long-term and fee-based contracts with its top-tier customer base.
Additionally, MLPX has several organic expansion projects underway that should enter commercial service over the next several years. These projects include:
- Secretariat gas-processing plant (end of 2025 in-service date).
- Harmon Creek III gas-processing plant, BANGL Pipeline expansion, and Blackcomb and Rio Bravo Pipelines (second half of 2026 in-service dates).
- Traverse Pipeline (2027).
- Gulf Coast Fractionators (2028 and 2029) and LPG Export Terminal (2028).
Between recently secured acquisitions and its organic investments, MPLX plans to deploy $5 billion into growing its operations this year. These investments will fuel rising earnings and cash flow through the end of the decade. That should support continued distribution growth. Meanwhile, MPLX's strong balance sheet will continue to provide it with the flexibility to make additional growth investments as opportunities arise. This will further enhance its ability to increase its distribution.
A top-tier income investment opportunity
MPLX's extensive midstream operations generate durable cash flows supported by long-term, fee-based contracts. That gives it the money to pay its lucrative dividend and invest in expanding its operations. MPLX also has a fortress financial profile, giving it added flexibility to fund growth while increasing its distribution. The company's combination of yield, financial strength, and growth makes it an excellent option for those seeking a secure and growing passive income stream.
